What is a Retirement Mortgage?

Author

Kevin Guttman - Certified Reverse Mortgage Professional

Posted on

Sep 26, 2022

Book/Edition

Colorado - Colorado Springs

Having been in the mortgage business since 2004, I can say with certainty there are no perfect people and therefore no perfect borrowers. Even though we are bombarded with what we should do, save 10-15% of our gross income, pay everyone on time, don’t get over extended, etc. Life happens. 

For example, there have been 7 recessions in my lifetime.  In the last 60 years, one third of the time the Dow Jones Industrial Average has been down overall for the year. We had Black Monday in 1987, the Great Recession of 2008-9, the economic impact of Covid 19, the dot com bust in the late 1990s, etc. 

The point is, even those of us who are financially prepared suffer under the same circumstances. Life and its ups and downs affects all of us. Some recover faster than others based on their profession, education, experience or economic cycle.

Why choose a Retirement Mortgage?

Then there are the constant pressures of rising costs, inflation, job uncertainty, will Social Security be there for me when I retire, will I be able to afford medical care or long-term care should I need it? What if I outlive my money? Have I saved enough money for retirement? The list is overwhelming.

Even if you’ve followed Dave Ramsey’s baby steps or tried to, or whichever financial guru you follow, few people live with financial security as they get older. A recent article I read said that 46% of people entering retirement do so with a mortgage, the highest percentage in history.

Homeowners all have the same buckets of money that we draw from: wages, investments and home equity. Once we stop working, we are down to investments and home equity. Most seniors I speak with don’t want to touch their investments, and more and more people are open to tapping their home equity.

How a Retirement Mortgage Works 

A senior homeowner with 50% or more equity can: 1. Eliminate their monthly PI mortgage payment, that right there gives them some breathing room in their budget. If they have more than 50% home equity, they can 2. Access their equity tax free 3 ways: a) lump sum; b) monthly payments; c) line of credit that earns compound interest. When they draw on the proceeds, they are paid directly to the homeowner and the homeowner can use the proceeds however they wish, except purchase an annuity.

So, why are people reluctant to tap their home equity? There are a few reasons. 1. They want to leave the house to their heirs (1% of children want their parents' home); 2. They were taught to pay off your home and not to have any debt, however in recent years fewer people own their homes outright; 3. Seniors have heard that reverse mortgages aren’t safe, are expensive, they can lose their homes, etc.

The truth is, a retirement mortgage also known as a reverse mortgage is the safest mortgage a senior can get. Why is that? They have to complete a 1-hour mandatory in person or phone counseling appointment with an independent 3rd party. When the reverse mortgage funds, about 50% of their home equity is protected from a market correction like we experienced in 2008-9.  With a FHA backed reverse mortgage (aka HECM), the fees are set and capped by HUD. There is never a PI mortgage payment required. These are non-recourse loans, which means the only recourse the lender has is against the home, not against the borrower, their heirs or estate. There is no pre-payment penalty. And they retain ownership on title until they permanently move out. The loan term is age 150 of the youngest borrower!

Mortgage Options for Retirees

When surveyed, 91% of senior homeowners said they want to remain at home and maintain their independence. Also, we know the number one fear a senior has is outliving their money. So, here’s what we have.

-senior homeowners who want to stay at home

-they fear running out of money

-many lived a reduced lifestyle while living on a fixed income

-they have investments they don’t want to liquidate

-and home equity that is frozen and not accessible

-they are making decisions about reverse mortgages from outdated and inaccurate internet info or uninformed neighbors or well-meaning family

When a senior homeowner takes the time to learn about how a reverse mortgage can help them. Their reactions are these: 1. What’s the catch? This sounds too good to be true and 2. How come everyone isn’t getting a reverse mortgage?

The best thing to do is to explore all options to see if a reverse mortgage makes sense for you. The qualifications are senior friendly, and we can usually close in 30-45 days. 

Explore your options and see how a reverse mortgage can change your life.

Get to Know Kevin A. Guttman Reverse Mortgage Specialist

A retirement mortgage doesn’t have to be complicated when you have a professional help you along the way. Contact our team today to get the wheels in motion a (877) 251-9709

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